Pensions

Question: Do contractor pensions differ compared to private pensions? Well, they don’t differ in terms of the structure of the investments per se, but where they do differ is how the pension will actually be funded. What a permanent employee would do is he’d fund his pension, from their own personal bank account. And, then he’d claim back the tax relief via self assessment.

That’s fine if you’re on £40,000-50,000 a year. You’ve got a lot of scope to do that as a permanent employee because what the HMRC rule will allow you to do is invest 100% of salary. So, somebody on 50 grand could if they had means to do so, invest £50,000.

Obviously it doesn’t take Einstein to work out that 100% of salary issue poses problems for contractors because if they’re working through a one man limited company what they’ll do is invariably pay a very low salary, maybe up to the NI threshold and then take the rest of their income as dividends. So you could be looking at a maximum investment that a contractor could make, personally, of £6000-£7000.Continue reading »Contractor Pensions – Save for the Future & Reduce your Tax →

The financial benefits of contracting are quickly diminish once you’ve been caught by IR35, however all is not lost if you are within IR35 you are able to invest your gross taxable income into a contractor pension scheme well before the taxes can be applied. This means that you are able to invest as much of your income as you can afford without the income been taxed.

Tony Harris goes into a lot more detail about how this works in the video, so I would suggest if you are affected by IR35 that you take the time to watch this short video

If you are not currently contributing to a contract pension there is a chance you up paying significantly more tax to HMRC then you need to. Pensions are one of the only true tax breaks that are left in the UK and can play an important role in minimising your taxable income, whether or not you are affected by IR35.

You are able to invest into pensions either personally or by your company and the amount of tax relief can reach as much as 49% so in real terms that means for every £100 you pay £51 and the taxman pays the remainder.

No mater what stage in life you are in it’s always a good time to start thinking about starting a pension. With the UK’s ageing population the state pension is becoming more and more strained. Apart from the importance of putting money aside for the future it is one of the most tax efficient ways of saving money. Currently the tax relief can be as much as 58% and it dosen’t matter if you are inside ir outside IR35.

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Financial advice is given by Contractor Guides, which is a trading name of Mortgage Quest Ltd and is regulated and authorised by the Financial Conduct Authority (FCA) registration number: 312484. Your home may be repossessed if you do not keep up repayments on your mortgage.